ATSG Reports Record First Quarter 2022 Results

One of the World's leading providers of medium wide-body aircraft leasing, contracted air transportation, and related services, Air Transport Services Group today reported consolidated financial results for the quarter ended March 31, 2022.

Rich Corrado, president and chief executive officer of ATSG, said, "The businesses of ATSG are all operating at pre-pandemic levels, with year-over-year gains in revenues and earnings from our airlines, led by Omni Air's passenger flying for military and commercial customers. Our employees again delivered outstanding service during the winter months. Our CMI customers have noticed, and are bringing more of the Boeing 767s they own or lease from others to our airlines to fly in their networks. CAM, our aircraft lessor, contributed to our earnings momentum for the quarter following last year’s record fifteen deployments of leased Boeing 767-300 freighters. To date, CAM has completed the first two of its projected eleven - nine 767-300s and two Airbus A321s - freighter lease deliveries in 2022. We have customer orders for all eleven 2022 deliveries as well as 19 deliveries in 2023, including fourteen 767-300s and five A321s."

ATSG's first quarter 2022 results, as compared with the first quarter 2021, include:

First Quarter 2022 Results

Revenues of $486 million, up 29%

GAAP Earnings of $50 million, up 18%

Adjusted Earnings Per Share* of $0.56, nearly triple the year-earlier $0.20. Amounts for both years reflect additional shares for a change in GAAP presentation related to convertible notes

Adjusted Pretax Earnings* of $64 million, more than triple $20 million a year ago

Adjusted EBITDA* $158 million, up 49%

Adjusted Free Cash Flow* $89 million, up 13% and $406 million for the trailing twelve months

* Adjusted Earnings Per Share, Adjusted Pretax Earnings, Adjusted EBITDA and Adjusted Free Cash Flow are non-GAAP financial measures and are defined and reconciled to GAAP measures at the end of this release.

Segment Results

CAM

A larger fleet of externally leased Boeing 767s versus a year ago contributed to CAM’s $24 million first-quarter revenue gain. CAM also realized 2022 revenues from new pay-by-cycle engine support services with several lessees of its 767-200 freighters. Aircraft leasing and related revenues from external customers were up 26 percent.

CAM’s first-quarter pretax earnings increased 63 percent to $35 million versus the prior-year quarter.

Eighty-six CAM-owned 767 freighter aircraft were leased to external customers as of March 31, eleven more than a year ago. CAM expects to lease nine more 767 and two A321 freighters in 2022.

 

CAM purchased one 767-300 and two A321-200 passenger aircraft during the first quarter for conversion to freighters. Fifteen CAM-owned aircraft were in or awaiting conversion to freighters as of March 31, 2022, including three A321s.

 

ACMI Services

First-quarter revenues increased 34 percent to $330 million. Block hours for ATSG's airlines reflected sharply higher passenger flying and the benefit of ten more freighters in CMI service than a year ago. That includes one that was provided by a customer for ATI to operate during the quarter, for a total of seven such customer-provided aircraft at March 31, up from two a year ago.

First-quarter flight schedules were up sharply from a year ago, particularly for passenger charter operations. Revenue block hours increased 21 percent overall, including a 32 percent increase for passenger and combi flying and a 19 percent increase for cargo aircraft.

Pretax segment earnings increased $0.9 million from the first quarter of 2021, which included $28 million from government grants in support of Omni Air’s passenger operations. The company has not recognized any earnings from government grants in 2022.

2022 Outlook

ATSG continues to project a record $640 million in Adjusted EBITDA for 2022, up nearly $100 million from 2021. ATSG also projects 2022 capital spending of $590 million, including $200 million in sustaining capex and $390 million for growth, primarily funded by the strong Adjusted Free Cash Flow ATSG will generate this year.

The forecast assumes:

Dry leases of eleven more converted freighters, including nine 767-300s.

CMI assignments for nine more 767 freighter aircraft. That includes two that CAM will lease and another seven others that the owners or lessees of those aircraft are placing with our cargo airlines to operate.

Omni’s commercial charter and ATI’s combi flights continue to increase throughout 2022, as charter demand and airport access reflect diminished pandemic risk.

“Our particularly strong first quarter puts us ahead of our projected pace toward the Adjusted EBITDA and Adjusted Earnings Per Share targets we set in February, as our freighter leasing and airline businesses are already delivering strong returns this year,” Corrado said. “Demand for express-package air assets remains very high. We have customer orders for all 30 of the newly converted freighters we will lease this year and next year, and already have customer orders for the first 20 of 29 Airbus A330s we will start to acquire and convert next year, with leases beginning in 2024 through 2026. We are pleased to count ASL Aviation Holdings, a major source of cargo lift to integrated global networks, among our future lessees of Airbus cargo aircraft. ASL has ordered the first two of our A321 freighters in the second half of this year, a third in 2023 and two A330 freighters in 2024.”

Corrado said ATSG will steadily acquire passenger aircraft to fill the more than 80 passenger-to-freighter conversion slots it now controls. ATSG's current plan calls for all of the Boeing 767, Airbus A330, and best-in-class Airbus A321 aircraft that will enter those slots to be leased and delivered to customers by the end of 2027.

“Those investments will extend our global leadership in the leased midsize freighter market, support the growth of e-commerce driven express networks throughout the world, and create a growing stream of capital for allocation among a range of value-enhancing options,” he said.

 

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AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
	Three Months Ended
	March 31,
	2022				2021
REVENUES	$	485,860			$	376,088
OPERATING EXPENSES
Salaries, wages and benefits		161,762				142,016
Depreciation and amortization		82,071				71,051
Maintenance, materials and repairs		35,709				42,007
Fuel		60,358				30,442
Contracted ground and aviation services		18,331				14,803
Travel		24,199				18,404
Landing and ramp		4,578				3,109
Rent		6,663				5,868
Insurance		2,552				3,136
Other operating expenses		19,843				16,423
Government grants		—				(28,030	)
		416,066				319,229
OPERATING INCOME		69,794				56,859
OTHER INCOME (EXPENSE)
Interest income		9				19
Non-service component of retiree benefit credits		5,388				4,457
Net gain on financial instruments		2,696				9,472
Losses from non-consolidated affiliates		(1,403	)			(1,183	)
Interest expense		(11,399	)			(14,522	)
		(4,709	)			(1,757	)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		65,085				55,102
INCOME TAX EXPENSE		(15,289	)			(12,812	)
NET EARNINGS	$	49,796			$	42,290
EARNINGS PER SHARE - CONTINUING OPERATIONS
Basic	$	0.67			$	0.71
Diluted	$	0.57			$	0.49
WEIGHTED AVERAGE SHARES - CONTINUING OPERATIONS
Basic		73,888				59,447
Diluted		88,744				74,744

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
	March 31,				December 31,
	2022				2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	35,538			$	69,496
Accounts receivable, net of allowance of $925 in 2022 and $742 in 2021		216,664				205,399
Inventory		49,716				49,204
Prepaid supplies and other		29,233				28,742
TOTAL CURRENT ASSETS		331,151				352,841
Property and equipment, net		2,182,076				2,129,934
Customer incentive		97,115				102,913
Goodwill and acquired intangibles		501,599				505,125
Operating lease assets		60,488				62,644
Other assets		114,500				113,878
TOTAL ASSETS	$	3,286,929			$	3,267,335
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	187,181			$	174,237
Accrued salaries, wages and benefits		50,953				56,652
Accrued expenses		12,098				14,950
Current portion of debt obligations		631				628
Current portion of lease obligations		18,840				18,783
Unearned revenue and grants		47,798				47,381
TOTAL CURRENT LIABILITIES		317,501				312,631
Long term debt		1,273,156				1,298,735
Stock warrant obligations		989				915
Post-retirement obligations		20,623				21,337
Long term lease obligations		42,238				44,387
Other liabilities		51,254				49,662
Deferred income taxes		227,128				217,291
STOCKHOLDERS’ EQUITY:
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock		—				—
Common stock, par value $0.01 per share; 150,000,000 shares authorized; 74,337,226 and 74,142,183 shares issued and outstanding in 2022 and 2021, respectively		743				741
Additional paid-in capital		1,035,029				1,074,286
Retained earnings		380,097				309,430
Accumulated other comprehensive loss		(61,829	)			(62,080	)
TOTAL STOCKHOLDERS’ EQUITY		1,354,040				1,322,377
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,286,929			$	3,267,335

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED SUMMARY OF CASH FLOWS (In thousands)
	Three Months Ended
	March 31,
	2022				2021
OPERATING CASH FLOWS	$	125,668			$	124,447
INVESTING ACTIVITIES:
Aircraft acquisitions and freighter conversions		(71,915	)			(80,075	)
Planned aircraft maintenance, engine overhauls and other non-aircraft additions to property and equipment		(36,337	)			(45,366	)
Proceeds from property and equipment		76				44
Acquisitions and investments in businesses		—				(1,697	)
TOTAL INVESTING CASH FLOWS		(108,176	)			(127,094	)
FINANCING ACTIVITIES:
Principal payments on debt		(90,100	)			(124,065	)
Proceeds from borrowings		40,000				140,000
Payments for financing costs		—				(151	)
Taxes paid for conversion of employee awards		(1,350	)			(1,197	)
TOTAL FINANCING CASH FLOWS		(51,450	)			14,587
NET INCREASE (DECREASE) IN CASH	$	(33,958	)		$	11,940
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	$	69,496			$	39,719
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	35,538			$	51,659

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES PRETAX EARNINGS AND ADJUSTED PRETAX EARNINGS SUMMARY FROM CONTINUING OPERATIONS NON-GAAP RECONCILIATION (In thousands)
	Three Months Ended
	March 31,
	2022				2021
Revenues
Total CAM		106,905				83,277
ACMI Services		330,090				247,131
Other Activities		102,535				93,698
Total Revenues		539,530				424,106
Eliminate internal revenues		(53,670	)			(48,018	)
Customer Revenues	$	485,860			$	376,088
Pretax Earnings (Loss) from Continuing Operations
CAM, inclusive of interest expense		34,995				21,462
ACMI Services, inclusive of government grants and interest expense		22,165				21,259
Other Activities		1,551				389
Net, unallocated interest expense		(307	)			(754	)
Non-service components of retiree benefit credit		5,388				4,457
Net gain on financial instruments		2,696				9,472
Loss from non-consolidated affiliates		(1,403	)			(1,183	)
Earnings from Continuing Operations before Income Taxes (GAAP)	$	65,085			$	55,102
Adjustments to Pretax Earnings
Add customer incentive amortization		5,798				5,699
Less government grants		—				(28,030	)
Less non-service components of retiree benefit credit		(5,388	)			(4,457	)
Less net gain on financial instruments		(2,696	)			(9,472	)
Add loss from non-consolidated affiliates		1,403				1,183
Adjusted Pretax Earnings (non-GAAP)	$	64,202			$	20,025

Adjusted Pretax Earnings excludes certain items included in GAAP based pretax earnings (loss) from continuing operations because they are distinctly different in their predictability among periods or not closely related to our operations. Presenting this measure provides investors with a comparative metric of fundamental operations, while highlighting changes to certain items among periods.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES ADJUSTED EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION NON-GAAP RECONCILIATION (In thousands)
	Three Months Ended
	March 31,
	2022				2021
Earnings from Continuing Operations Before Income Taxes	$	65,085			$	55,102
Interest Income		(9	)			(19	)
Interest Expense		11,399				14,522
Depreciation and Amortization		82,071				71,051
EBITDA from Continuing Operations (non-GAAP)	$	158,546			$	140,656
Add customer incentive amortization		5,798				5,699
Less government grants		—				(28,030	)
Add non-service components of retiree benefit credits		(5,388	)			(4,457	)
Less net gain on financial instruments		(2,696	)			(9,472	)
Add loss from non-consolidated affiliates		1,403				1,183
Adjusted EBITDA (non-GAAP)	$	157,663			$	105,579

Management uses Adjusted EBITDA to assess the performance of its operating results among periods. It is a metric that facilitates the comparison of financial results of underlying operations. Additionally, these non-GAAP adjustments are similar to the adjustments used by lenders in the Company’s senior secured credit facility to assess financial performance and determine the cost of borrowed funds. The adjustments also remove the non-service cost components of retiree benefit plans because they are not closely related to ongoing operating activities. The adjustments also excluded the recognition of government grants from adjusted earnings to improve comparability between periods. Management presents EBITDA from Continuing Operations, a commonly referenced metric, as a subtotal toward computing Adjusted EBITDA.

EBITDA from Continuing Operations is defined as Earnings (Loss) from Continuing Operations Before Income Taxes plus net interest expense, depreciation, and amortization expense. Adjusted EBITDA is defined as EBITDA from Continuing Operations less financial instrument revaluation gains or losses, non-service components of retiree benefit costs including pension plan settlements, amortization of warrant-based customer incentive costs recorded in revenue, recognition of government grants, impairment of aircraft and related assets, charge off of debt issuance costs upon debt restructuring and costs from non-consolidated affiliates.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES ADJUSTED FREE CASH FLOW NON-GAAP RECONCILIATION (In thousands)
	Three Months Ended								Trailing 12 Months Ended
	March 31,								March 31,
	2022				2021				2022
OPERATING CASH FLOWS (GAAP)	$	125,668			$	124,447			$	584,778
Sustaining capital expenditures		(36,337	)			(45,366	)			(178,698	)
ADJUSTED FREE CASH FLOW (Non-GAAP)	$	89,331			$	79,081			$	406,080

Sustaining capital expenditures includes cash outflows for planned aircraft maintenance, engine overhauls, information systems and other non-aircraft additions to property and equipment. It does not include expenditures for aircraft acquisitions and related passenger-to-freighter conversion costs.

Cash receipts from government payroll support programs, which are included in operating cash flows, were $0 and $37.4 million for the three month periods ended March 31, 2022 and 2021, respectively. Cash receipts from government payroll support programs were $45.6 million for the twelve months ended March 31, 2022.

Adjusted Free Cash Flow (non-GAAP) includes cash flow from operations net of expenditures for planned aircraft maintenance, engine overhauls and other non-aircraft additions to property and equipment. Management believes that adjusting GAAP operating cash flows is useful to evaluate the company's ability to generate cash for growth initiatives, debt service, cash returns for shareholders or other discretionary allocations of capital.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES ADJUSTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS NON-GAAP RECONCILIATION (In thousands)
	Three Months Ended
	March 31, 2022							March 31, 2021
	$			$ Per Share				$				$ Per Share
Earnings from Continuing Operations - basic (GAAP)	$	49,796						$	42,290
Gain from warrant revaluation, net of tax1		—							(5,355	)
Convertible notes interest charges, net of tax2		760							—
Earnings from Continuing Operations - diluted (GAAP)		50,556			0.57				36,935				0.49
Adjustments to remove the following, net of tax
Customer incentive amortization3		4,475			0.05				4,398				0.06
Government grants4		—			—				(21,633	)			(0.29	)
Non-service component of retiree benefits5		(4,158	)		(0.05	)			(3,440	)			(0.04	)
Derivative and warrant revaluation6		(2,081	)		(0.02	)			(1,956	)			(0.04	)
Loss from affiliates7		1,083			0.01				913				0.01
Convertible debt interest charges (prior period), net of tax2		—			—				2,324				0.01
Adjusted Earnings from Continuing Operations (non-GAAP)	$	49,875		$	0.56			$	17,541			$	0.20
	Shares							Shares
Weighted Average Shares - diluted (GAAP)		88,744							74,744
Additional shares - warrants1		—							5,292
Additional shares - convertible notes2		—							8,111
Adjusted Shares (non-GAAP)		88,744							88,147

This presentation does not give effect to convertible note hedges the Company purchased having the same number of the Company's common shares, 8.1 million shares, and the same strike price of $31.90, that underlie the Convertible Notes. The convertible note hedges are expected to reduce the potential equity dilution with respect to the Company's common stock upon conversion of the Convertible Notes.

Adjusted Earnings from Continuing Operations and Adjusted Earnings Per Share from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations, Weighted Average Shares - diluted or Earnings Per Share from Continuing Operations or any other performance measure derived in accordance with GAAP. Adjusted Earnings and Adjusted Earnings Per Share from Continuing Operations should not be considered in isolation or as a substitute for analysis of the company's results as reported under GAAP.

1.		Under U.S. GAAP, certain warrants are reflected as a liability and unrealized warrant gains are typically removed from diluted earnings per share (“EPS”) calculations, while unrealized warrant losses are not removed because they are dilutive to EPS. For all periods presented, additional shares assumes that Amazon net settled its remaining warrants during each period.
2.		Application of accounting standard ASU No. 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" was adopted prospectively for EPS calculations on January 1, 2022 using the modified retrospective approach. The new GAAP requires convertible debt to be treated under the "if-convert method" for EPS. Periods prior to adoption include adjustments to reflect EPS as if the new standard had been applied historically for comparability purposes.
3.		Removes the amortization of the warrant-based customer incentives which are recorded against revenue over the term of the related aircraft leases and customer contracts.
4.		Removes the effects of government grants received under federal payroll support programs.
5.		Removes the non-service component of post-retirement costs and credits.
6.		Removes gains and losses from derivative interest rate instruments and warrant revaluations.
7.		Removes losses for the Company's non-consolidated affiliates.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES AIRCRAFT FLEET
Aircraft Types
		March 31, 2021				December 31, 2021				March 31, 2022				December 31, 2022 Projected
		Freighter		Passenger		Freighter		Passenger		Freighter		Passenger		Freighter		Passenger
B767-200		30		3		33		3		33		3		32		3
B767-300		55		9		65		9		67		9		81		8
B777-200		—		3		—		3		—		3		—		3
B757 Combi		—		4		—		4		—		4		—		4
A321-200		—		—		—		—		—		—		2		—
Total Aircraft in Service		85		19		98		19		100		19		115		18
B767-300 in or awaiting cargo conversion		9		—		12		—		12		—		10		—
A321 in cargo conversion		—		—		1		—		3		—		8		—
B767-300 staging for lease		1		—		—		—		—		—		—		—
B767-200 staging for lease		3		—		1		—		1		—		2		—
Total Aircraft		98		19		112		19		116		19		135		18
Aircraft in Service
		March 31,				December 31,				March 31,				December 31,
		2021				2021				2022				2022 Projected
Dry leased without CMI		31				35				36				44
Dry leased with CMI		44				50				50				52
Customer provided for CMI		2				6				7				13
ACMI/Charter1		27				26				26				24

1.

ACMI/Charter includes four Boeing 767 passenger aircraft leased from external companies.

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